Fed Payment Accounts Need Tougher Safeguards, Financial Groups Warn

The Bank Policy Institute (BPI), Financial Services Forum, and The Clearing House Association have expressed concerns about the Federal Reserve's proposed payment accounts. In a comment letter, they emphasized the need for strong safeguards to protect the U.S. financial system.

The Fed's proposed framework would give direct access to its payment rails to firms without deposit insurance or federal banking agency supervision. The BPI and other organizations warn that this could expose the financial system to significant risk.

To mitigate risks, the Fed has proposed limits on payment account holders, including restrictions on access to certain services, no interest paid on accounts, and overnight balance limits. However, the BPI recommends further safeguards, such as requiring applicants to maintain BSA/AML standards comparable to insured banks and subjecting them to examination by a federal banking supervisor.

The organizations also urged the Fed to consider the systemic impact of offering payment accounts, ensure consistent and transparent standards across Reserve Banks, and release payment account requests for public comment.